Bull Market for Bear Books

Posted by: Matthew Goldstein on May 12

Bear Stearns may be long gone, but a lot of trees are being killed to tell the story of its final days.

The latest Bear book to hit the shelves is Kate Kelly’s, “Street Fighters,’’ which chronicles the “last 72 hours’’ of “the toughest firm on Wall Street.” Kelly’s book is being released a few weeks after William Cohan’s “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.” And earlier this year, derivatives guru Janet Tavakoli released “Dear Mr. Buffett,” an ode to the legendary investor that spent considerable time analyzing the toxic mess of securities that led the problems at Bear Stearns, Lehman Brothers and other Wall Street firms.

But one take away from all of these books is just how central the June 2007 collapse of two giant Bear hedge funds were to understanding the current crisis. Full disclosure: all of these books make direct or indirect mention to stories written by myself, or in collaboration with my BW colleague David Henry. In light of that, this post shouldn’t be taken as a recommendation to pick-up anyone of these texts. I’ll leave that to the reviewers. Yet it’s clear now—even if it wasn’t entirely at the time—that the spectacular growth and implosion of the Bear funds is a microcosm of everything that went wrong on Wall Street.

Just like the Bear funds, all of Wall Street relied on obscene amounts of leverage to finance the explosive growth in subprime home loans and securities that were far too complex for anyone to ever understand. In the end, firms like Bear, Lehman, Merrill, just like the Bear funds, mortgaged their futures to capture as much profit as they could while the wheels of finance made leverage all too readily available.

Come September, we will learn a lot more about how the current financial crisis took root when the former managers of the Bear funds, Ralph Cioffi and Matthew Tannin, stand trial in federal court in Brooklyn. To date, Cioffi and Tannin are the only prominent Wall Street traders to get charged with securities fraud in the financial crisis. But with federal prosecutors continuing to investigate the collapse of Lehman and near-death of American International Group, there’s a good chance Cioffi and Tannin may have company by year’s end.

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.